HUB24 acquires Paragem.

HUB24  is pleased to announce it has executed an agreement to acquire the independently owned financial planning licensee Paragem Pty Ltd (Paragem).

Paragem is a leading boutique dealer group, founded by Ian Knox and Charlie Haynes that has grown strongly to license 20 high quality financial advisory practices across Australia, which advise on more than $2.5 billion of client funds.

HUB24 and Paragem are highly complementary with minimal overlap and share a common goal to create strong financial advice practices and a platform group not aligned to product manufacturers. With over 40 years of combined industry experience, Mr Knox and Mr Haynes will continue to grow the Paragem business and add significant depth of experience to the HUB24 executive team.

Transaction highlights

• HUB24 has executed an agreement to acquire 100% of the shares in Paragem.
• Completion is planned to occur over the next few weeks subject to satisfaction of conditions precedent including that acquisition arrangements are agreed between Paragem advisers and HUB24 to the satisfaction of the parties.
• Cash consideration of $1m at completion with a deferred cash payment at 12 months of up to $1m (subject to customary adjustments) to be funded from existing cash resources.
• Capped earnout consideration of up to an additional $6m subject to financial performance measured over 3 years and paid in HUB24 ordinary shares no later than 30 September 2017 (with the number of shares determined by reference to the 60 day VWAP until today’s announcement of 92.47 cents).
• Paragem is currently self-funding and has been cashflow positive over the past two financial years.
• The Paragem business had gross revenues (inclusive of payments to advisers) of $20.2m in FY14, has operated on a break even basis and is in a strong growth phase.
• Ian Knox and Charlie Haynes will enter into executive service agreements – remuneration and performance incentives will be similar to existing HUB24 executives.

The acquisition of Paragem is consistent with HUB24’s strategy to pursue significant growth by partnering with quality independently minded financial advisers (IFAs).  Working together with Paragem and HUB24’s existing highly valued advice licensees, the company will continue to develop solutions for the benefit of the IFA market and consumers. Given the level of industry consolidation occurring in the licensee space, HUB24 is pleased to be able to work with Paragem, whilst continuing to strengthen existing relationships. Together we will provide a compelling home for like-minded financial advisers who value choice and the ability to freely run their own business, while working with HUB24 to develop better, more cost effective client outcomes.

Both HUB24 and Paragem will retain their existing brands and will continue to operate independently. Importantly, Paragem will retain its open architecture approach to approved products and platforms and HUB24 will maintain its focus on supporting the growth and prosperity of its existing licensee clients and pursuing new client opportunities with its market-leading platform solution.

HUB24 CEO Andrew Alcock stated, “We see this acquisition as being consistent with HUB24’s core proposition of providing high value services to licensees and advisers. We were also determined to ensure any entry into the advice space would result in a further enhancement of HUB24’s rapid growth, diversification of the company’s revenue stream and continued improvements to platform functionality, which will be highly valued by the broader IFA market. In addition to providing our HUB24 retail products to advisers, we will continue to focus on our core business providing white labels to financial planning groups, accountants and stockbrokers whilst also developing and supporting the Paragem business”.

He added, “HUB24’s platform will enable Paragem advisers to act in the best interests of their clients. We offer a pathway to a broad investment universe, free of product issuer conflict, utilising direct securities, managed accounts, traditional managed funds as well as multiple term deposit and insurance providers. We are not aligned with product manufacturers and therefore not constrained in the products we offer.”

Paragem Managing Director, Ian Knox, agreed saying “Paragem’s client base is well suited to Separately Managed Account (SMAs) investments that are professionally constructed and managed and we reviewed the entire market before determining HUB24 was the most suitable partner. We wanted to embrace an independent technology-based product provider at the forefront of SMAs and managed accounts, not one that was just thinking about the concept.”

An important consideration in acquiring Paragem is the cultural alignment between the two businesses. The fusion of advice and technology supports the ability to deliver exceptional customer service outcomes and adviser practice efficiency. In addition, both Paragem and HUB24 understand the importance of existing relationships and the acquisition is not expected to alter these in any way.

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A former Hillross practice, Affinity obtained its own AFSL with Paragem earlier this year and is now one of the fastest growing private client firms in NSW with $250 million funds under advice on behalf of 300 clients.

Paragem Managing Director, Ian Knox, said Model Office provided planning practices with process improvements which lowered compliance and back office costs.

“The growing list of clients now using Model Office reflects growing demand from planners to streamline their businesses with simple and effective practice management tools,” Mr Knox said.

Managing partner of Affinity Wealth Services Keith Jones said the partnership with Paragem was a complement to Affinity’s independent and professional advice offering.

“We wanted to make sure our strong advice and investment service offering was supported by reliable operational systems and it was important that those systems enabled us to focus on the part of the business that is most important, providing advice and managing risk for clients,” said Mr Jones.

Advisers focus on risk management support
Melbourne-based, Carnbrea and Co. Limited has appointed Paragem to implement and maintain its risk management and compliance needs for its wealth management arm with a focus on governance and process improvement.

Carnbrea Chief Executive Officer, Robert Lyon said risk management had been a priority for the wealth manager, which has a well established presence dealing with family offices.

“Having previously used Paragem for our licence review, they were the natural choice to meet our broader compliance requirements. We’re looking forward to growing our business with the support of Paragem and the experience it brings dealing with complex and compliant advice models,” said Mr Lyon.

Mr Knox said Paragem was well placed to support Carnbrea as the practice sought to capture a slice of the rapidly growing family office sector in Australia.

“Outsourcing part of the compliance programme but linking it to internal requirements enables Carnbrea to access independent, high quality support and establish the necessary level of governance it demands,” concluded Mr Knox.

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Independent service provider Paragem is set to continue the strong growth in its dealer services and licensing businesses as reported in January this year, with five new planner practices currently in the process of securing their Australian Financial Services License (AFSL).

The increasing number of planners opting to break with product-aligned dealer groups in search of genuine, conflict free dealer services has seen Paragem, the largest independent provider of dealer services to the IFA market, introduce five AFSLs to its network in the last two months.

Paragem director, Ian Knox, said the growing number of practices joining the Paragem network was evidence of the demand being driven by clients, advisers and regulators for conflict free advice.

“As regulatory changes and Australian consumers increasingly demand conflict free financial advice, IFAs will be of growing importance to the financial services landscape, particularly in terms of building the community’s trust in our industry.  We are certainly seeing an uptick in demand from advisers wanting to make the move and we expect IFAs will become a larger part of the planning community in the future,” Mr Knox said.

David Smith of Hub Wealth Management, Paragem’s latest licencee, said he and business partner, Andrew Wiefler, were driven to seek out their own AFSL because it meant they could provide conflicted-free advice that is more tailored and relevant for clients.

“Obtaining our own AFSL has meant we have full flexibility to access an extensive array of quality research, while also conducting an in-depth review of the quality and cost of available administrative solutions.  This combination is critical when selecting optimal investment and strategy solutions for individual client needs.  It also means we can respond quickly to changing circumstances.  It all comes down to a firmer foundation from which to achieve better results for clients,” Mr Smith said.

Mr Smith said he was surprised to find the process was relatively straightforward.  “We went into this exercise expecting to be overwhelmed with admin and compliance but have found with the support of Paragem the process has been quite simple.  Yes, there are more responsibilities and obligations under your own AFSL  However, the freedom it provides so you can control your own destiny and clearly demonstrate to clients that our interests are aligned with theirs makes the extra effort worthwhile,” he said.

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Independent service provider Paragem today announced its Dealer Services and Wholesale AFSL businesses have recorded strong growth as demand from financial planners for genuine conflict-free dealer services accelerates to meet the surging consumer demand for independent advice.

Paragem Dealer Services virtual IFA network exceeds 200 licences

Paragem Dealer Services has announced a record increase of new clients in 2010 with over 200 AFSLs now operating within the groups shared service model.

Paragem Dealer Services is a virtual network of over 1,000 independently minded advisers and is the largest independent provider of dealer services to the IFA market. Paragem provides a broad range of back office dealer services to retail advice businesses to enable them to access scale benefits in professional areas such as compliance, software planning support, professional indemnity (Pl) insurance, professional development (PD) days and product research. Over 90% of the client base is boutique style planning practices with typically more than $50 million under advice per AFSL. The remaining 20% is mid tiered dealer networks looking to outsource selected dealer functions.

ACT’s leading planning practice Aset Wealth Management is the latest to join the network and has come from BT’s inhouse Licensee Select. Aset looks after over $350 million in funds under advice has 11 staff and uses Paragem for all back office service including strategy support on industry matters affecting planning businesses.

As the Future of Financial Advice (FoFA) reforms are implemented, Paragem managing director Ian Knox said learning how to operate profitably and independently from product manufacturers was one of a number of key challenges ahead for many IFAs and that Paragem is committed to supporting this cause through its professional services support

“IFAs will always stand up for the value of their advice, their business and their clients – this leaves them well positioned to champion non conflicted advice.” He pointed out that the market was transitioning quickly to a new paradigm such that while many advisers are still grappling with how to gain a share of the product margin, product manufacturers and private equity firms are reversing this and are now seeking to gain a share of the advice margin by investing in advice businesses. This positions IFAs really well as volume bonuses are eroded and advice fees increase he said.

“In our opinion the FoFA outcome will provide added stimulus for advisers to become independent – either by being self-licenced or under a conflict free licensing arrangement. We’ve been operating on this basis since Paragem was established in 2005 and are the only group able to support and champion advisers under either model,” he said.

Paragem Wholesale AFSL grows to $1.2 billion in FUA

Reflecting the growing desire among financial planners to provide conflict free advice, Paragem’s Wholesale AFSL service has grown from three to 13 practices over the last 18 months, delivering an increase in funds under advice (FUA) to $1.2 billion.

The service selectively wholesales its non-aligned AFSL to successful, independently minded practices which are striving for excellence in advice. Advisers have the freedom to run their own business, promote their brand and select the best platform and products for their clients’ needs in contrast to being part of an aligned dealership seeking to develop a large distribution network to promote funds into a given platform. Full licensing support and governance is part of the service benefit.

The Paragem Wholesale AFSL proposition has attracted the attention of some of the best practice heads in the country who are looking for leadership and support to build consumer confidence in planning. The most recent example joining the Wholesale AFSL is a collective group of four practices known as the FMD Group, formerly one of AMP Hillross’s largest and most successful practices with over $700million under advice.

FMD Group practice head Greg Fagan, said: “We looked for a strong governance based licensing arrangement that gave us full flexibility in the platform support we require, access to changing market developments such as IMA’s and access to a product suite unhindered by ownership politics. The wholesale licence provides this under Paragems custody and enables us to focus on offering the best advice to our clients and growing our practices profitably.”

Mr Knox said the changing regulatory landscape had contributed to the growing demand from practices wanting to join Paragem Wholesale AFSL and that the licence would continue to focus on high quality practices with cultural compatibility and like minded integrity.

“As FoFA unfolds we expect interest in our Wholesale AFSL business to grow as quality planning practices recognise the importance of removing perceived or real conflicts of interest with product promoters,” he said.

Despite the rise in expressions of interest for the AFSL, Mr Knox said Paragem has continued to screen practices for firms that demonstrate putting client interests first and that the licence had no intention on focussing on increased adviser numbers for the sake of size.

“There’s no correlation between good advice and large numbers of authorised representatives and yet the industry boasts about headcount as if to demonstrate success.

“Our strong compliance culture enables careful due diligence when we meet new practices and we take months to engage properly, this includes examining file histories and new practices being screened by other practices within the model. I don’t know how a dealer group can grow by hundreds and claim quality screening and quality assessment” he said. “Yet one bad apple contaminates a brand.”

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